Weathering the storm – fundamental change ahead!

“Maintaining Confidence in an Uncertain Environment” was the timely theme of the 2^nd Annual Industry Leaders’ Summit of The Insurance Institute of Ireland on Thursday 9^th October 2008 at the Four Seasons Hotel. Delegates were treated to thought-provoking observations on what might be in store for financial markets and future climatic conditions.

Ray Carroll, member of the world record breaking team in the 2007 Trans Atlantic Rowing ChaSponsorsllenge, gave a moving and inspirational account of how he had coped with tragic personal loss through determination, discipline, competiveness and teamwork to raise funds for AWARE.

On the subject of teamwork, Dr Martin Mansergh TD, Minister of State at the Department of Finance, emphasised the Government’s commitment to work closely with the industry to keep Ireland competitive within an appropriate Regulatory structure. The Minister gave a frank and lucid presentation of the “knock-on “effects of the current state of the World economy and advised that the Budget would focus on specifics to reflect the change in realities and the downturn in Tax revenue.

Recent market turmoil had highlighted the need to identify Risk and the purpose of the EU’s Solvency II Directive was to provide protection for Policyholders. Insurance would continue to be an important part of Ireland’s continuing development as a major International Financial Centre. He also looked to the insurance industry to provide support in achieving Pension Reform.

Margaret Doyle, Consulting Editor at Economist Conferences, had the unenviable task of dealing with the “credit crunch”, the prospect of which had been alluded to in last year’s Institute conference. A Wexford lass, as many present surmised, Margaret gave an impressive overview of a crisis that had not been caused by Corporate America but rather by the household credit and Financial Service sector.

Events had escalated so rapidly in recent weeks that it was difficult to distinguish whether the markets were in a Liquidity or Insolvency crisis, which had not been foreseen by the myopic Rating Agencies. In the US, she believed that there would be a greater likelihood of combining the functions of the independent State Commissioners and that there would be an overhaul of Financial Regulation in both the US and the United Kingdom.

David Drumm, Group Chief Executive of Anglo-Irish Bank PLC, put the cause of the crisis down to a lack of proper risk pricing where credit was “commoditised” plus the fact that Investment banks were “sellers” rather than “lenders”. Although Ireland was well regulated and boasted a liquidity “buffer” of 30 days, compared to the UK’s only 5 days, there was still huge International “negativity” about Ireland, largely predicated by the poor property market.

Professor Crichton, Environment Consultant and Visiting Professor at Benfield UCL Hazard Research, University of London threw out some new perspectives on Climate Change. There was no doubt that that there is now a greater incidence of natural disasters and that the cost of claims has increased dramatically.

Whilst mitigation might help reduce the pace of Climate Change, it was inevitable. He forecast that the UK’s Meteorological Office would be revising its projections for weather patterns in November 2008, which would show wetter summers in Ireland and even hotter weather in the Mediterranean.

Adaptation to the changing conditions was required and Architects needed to understand the effects that their “artistic” glass buildings had on greenhouse gas emissions, through the increased need for air-conditioning! Architects should look at least 60 years ahead and Planning Authorities (especially in Ireland and the United Kingdom) should pay greater attention of the “blight” risk of authorising new builds on known flood plains.

Whilst scientific modelling and mapping technologies could help forecast the risk of flooding, what was needed was greater action in the form of educating the Public and lobbying the Authorities to manage risks better. According to a recent Irish Government study, the insurance industry would need to charge an extra Euros 500 for the flood risk to domestic property alone.

Professor Crichton suggested that the insurance industry participate actively in the Irish Government’s consultation on “The Planning System and Flood Risk Management”. He made a number of recommendations for the improvement of Ireland’s management of flood risk, which were not “pie in the sky” – they had already been implemented successfully in Scotland!

Michael Cawley, COO and Deputy Chief Executive of Ryanair, defended the airline industry’s record on the emission of greenhouse gas which he said was at only 1.6%. However, there should be a discriminating tax against poor performing airlines. The current financial crisis called for a fundamental change as Life could not go on as it has done. Companies should behave with humility in the future.

He saw the transport of passengers as a commodity where the only way ahead was to lower the price. Ryanair had achieved an extremely competitive cost benefit in its staff to the number of travellers served. Seemingly flying in the face of the current financial “depression”, Ryanair proposed a substantial increase in its fleet and the doubling of passengers carried per annum by 2012. Mr Cawley concluded his presentation of “Flying high in Turbulent times” with the view that “Any idea that isn’t absurd in the beginning is ....useless!”

Philip Smith, Chief Executive of RSA Ireland described the insurance industry as vibrant and progressive, when looking to provide “solutions to address a burning platform”. In a competitive environment and difficult economic landscape, he was also looking for continuous improvement.

However, cost advantage had to be measured against customer value and he concluded that investment in people will yield the best return.

Returning to the main theme of the conference, Niall Gallagher, Group Compliance Officer – Business Ethics of Allied Irish Bank Plc, remarked that the first casualty of any crisis is TRUTH. In the current market conditions, there was now an overriding need to restore TRUST in the Financial sector.

Whilst Regulation must play its part, Rules-based compliance was no match for Ethical Standards and he warned against stifling regulation, which would come at a high cost. Reputation was critical to long-term sustainable performance, based on TRUST, and it would take many years to repair.

In his address to the conference before luncheon, Dr Garret FitzGerald, former Foreign Minister and Taoiseach, took as his theme “How did we get into this Mess?”. With particular regard to Ireland’s economy, he outlined the progressive destabilisation of the economy through accelerated public spending which in turn impacted on price inflation and consequently wage inflation.

The persistence of a high rate of Irish economic growth owed little to exports but rather to demand being artificially stimulated by an unsustainable credit boom. He had serious criticism to make of the business community, Media and the Opposition for their combined failure to address issues of economic and fiscal policy and cited a number of examples.

The country’s fiscal problems were not so much excessive Public spending, which was low by EU standards, but rather due to the erosion of the tax base in recent years. This confirmed the earlier comments by Dr Mansergh on the need to review specifics within the Budget.

Dr Garret FitzGerald held up some hope that Ireland could indeed emerge from the crisis, subject to there not being a global economic collapse. This would be a slow and painful process but there were encouraging signs with the recent successes in the development of export services, especially computer services, where Ireland seemed to now have a lead role in Europe.

Ray Carroll, the first Speaker of the day, had proven that success can be a slow painful process and it may be no coincidence, as a sign of the times, that Aviva soon ran out of “stress balls”!

Malcolm Hughes, President of The Insurance Institute of Ireland highlighted the outstanding work being done in the Institute in providing outstanding educational and technical training and in these turbulent times, a skilled, competent and professional workforce which is the cornerstone of our industry.  He saw this as an investment in our people, our business and industry ourselves.

Malcolm congratulated Denis Hevey, Chief Executive, and the team at The Insurance Institute of Ireland of having delivered such a meaningful and informative Industry Leaders’ Summit this year. It will be a hard act to follow!